The National Pension Service (NPS) will speed up alternative investment decisions and expand the investment scope to include private debt and multi-asset funds as well as single hedge funds in efforts to improve returns.
The move, announced by the Ministry of Health and Welfare on May 3, comes amid criticism that the $570 billion pension scheme has been hamstrung by the complex and long decision-making structure which resulted in missing profitable investment opportunities.
Regulations that had restricted NPS’ alternative investments to a narrow range of asset types have made it difficult to boost alternative investment.
For speedy investment execution, NPS will be allowed to decide within the organization on a co-investment, or a small-size investment of under $50 million, without seeking approval from its highest decision-making body of the fund management committee.
By doing so, NPS is expected to shorten an investment decision to four weeks from the current eight weeks.
Further, NPS is seeking to increase a single alternative investment size. For example, it may be able to commit up to 500 billion won ($427 million) to a private equity fund from the current 100 billion won.
It plans to lift the proportion of alternatives to 15% by 2023 from 11.6% at the end of February. Fixed incomes accounted for 51.0%, followed by equities at 37.4%.
To respond aggressively to market changes and the introduction of new financial products, NPS will add private debt and multi-asset funds to its alternative portfolio. Such new asset types can make up to 2.4% of total assets, or 16 trillion won.
Up to now, its alternative investments had been limited to private equity funds, infrastructure and real estate.
Additionally, NPS is now allowed to invest in a single hedge fund so that it can build its own portfolio and select a fund house whereby it can save fees and improve hedge fund management capability.
NPS began hedge fund investment in 2016 via funds of funds by committing $500 million each to BlackRock Alternative Advisors and Grosvenor Capital Management.
It has been allowed to allocate up to 0.5% of total assets into hedge funds since 2015.
“This year, National Pension Service faces tough conditions of both the economy and society. Under such circumstances, NPS will concentrate more on improving returns to enhance sustainability of the fund,” Welfare Minister Neung-hoo Park said in a statement released by the ministry after he presided over the fund management committee.
The ministry elaborated that the tough conditions Park meant referred to recent downward revisions on South Korea’s economic growth forecast and falling birth rate.
By Chang Jae Yoo
<Edited by Yeonhee Kim>
(Photo: Getty Images Bank)